Online retail giants Amazon, eBay, Etsy and Alibaba say the federal government has severely underestimated the threat of rival foreign online retailers failing to comply with its planned GST changes, and consumers will be left worse off.

Goods bought from overseas sellers and imported to Australia worth less than $1000 are currently GST exempt, but Treasurer Scott Morrison wants to apply the 10 per cent tax to all sales from July 1 this year.

The online retailers on Friday appeared before a federal inquiry held in Melbourne into the proposed legislation.

They told the Senate Economics Committee inquiry that while they were in favour of low-value goods under $1000 attracting GST, the proposed collection method - a vendor-based model of collecting the tax rather than using agencies like Australia Post to collect it - was too difficult to comply with and near impossible to enforce.

Labor has called on the Turnbull Government to delay its implementation for one year, until 1 July 2018.

Shadow assistant treasurer Andrew Leigh said the Turnbull Government had botched its implementation, with Treasury admitting the lack of a Regulation Impact Statement was in breach of the Office of Best Practice Guidelines.

"The Australian Taxation Office, lumbered with a vague plan by the Government, were left to explain that jurisdictions like the USA and China will not enforce the measure on their behalf. Platform compliance is largely reliant on the goodwill of overseas operators," Mr Leigh said.

Joo Man Park, eBay managing director and vice-president for Australia and New Zealand, addressed the inquiry. Ebay claimed that Treasury officials had told them they expect a 25 to 30 per cent compliance rate.

Mr Park said that eBay did not have tax collection capabilities and reiterated the threat of geoblocking - stopping Australian shoppers from buying goods from overseas - if the changes go ahead.

Amazon director of global trade services Kevin Willis said the collection model was "unworkable" and the bill as it stands may destroy competition and raise prices. He said there had never been a tax of this magnitude and complexity that he'd seen.

KPMG has completed modelling that suggests the government could collect about $930 million by 2019-20 by applying GST on goods purchased by households from overseas valued at less than $1000, but since there would be some level of non-compliance, the actual tax collected would be closer to $650 million if the same 'logistics model' was adopted as the collection mechanism. KPMG assumes there will be at least 30 per cent non-compliance among foreign retailers.

Etsy director of public policy Angela Steen said the collection method set "a dangerous precedent for Australian entrepreneurs who export their goods through platforms like Etsy".

If passed, Australia would be the first country to require foreign sellers and marketplaces to collect and remit GST on any item, no matter how small.

This would significantly impact microbusiness exports around the world, especially through global marketplaces like Etsy. In Australia, more than 90 per cent of Etsy sellers are women and the majority are selling on Etsy to supplement income and pursue their creative passion, she said.

Alibaba director of business development Australia and New Zealand John O'Loghlen said the change would see some foreign retailers and smaller e-commerce players dodge the tax, leaving Australian retailers exposed to the same price pressures they experience now.

"We are strongly of the view that the proposed measures should be abandoned and replaced with a fairer, more effective model based on logistic providers being responsible for the collection of GST on low-value goods," he said.

Otherwise there would be distortions between those that comply, and those that don't.

"Given the time and cost associated with complying, coupled with there being no form of solution to identify goods on arrival at the border, modelling indicates that 75 per cent of goods (by value) imported into Australia will continue to go untaxed."

He said foreign small businesses are particularly disadvantaged on compliance because of the $75,000 GST turnover threshold.

A Chinese hat merchant selling into Australia through AliExpress will see GST will be applied to every single sale, even if this Chinese seller's entire Australian revenue is just a couple of hundred dollars for the relevant year.

"This is because the proposed measures force the threshold to be assessed at the platform level, in this case AliExpress reaching A$75,000 as a whole, rather than based on the individual seller's turnover."

"However, if that exact same hat merchant used their own platform in the form of an individual website, there is no GST unless and until they exceed $75,000 worth of sales in Australia. When they do exceed this mark, the onus will be entirely on them to report and collect the tax.

"The ATO is not equipped to monitor millions of Chinese businesses and because of this, it will create an incentive for some businesses to dodge the tax and cheat the system."

He said a significant challenge was the many exemptions within Australia's GST system.

"For example, GST allows basic food and beverages to be GST-free, however, interpretation of prescriptive rules and exemptions result in bizarre outcomes, such as 'crackers being taxable and dried bread being GST free'. Educating businesses on this complex system would be near impossible."

The complexities of compliance would result in many low-value goods continuing to be imported into Australia without being subject to GST, thereby not levelling the playing field for Australian businesses.

"Australian businesses will continue to be exposed to price pressures because of non-compliant businesses. For consumers, the proposed measures will reduce access to goods and increase costs."

"Given the complexity of compliance, it wouldn't be surprising if overseas vendors stop selling and shipping into Australia as they do not have the resources to comply. Those that do attempt to comply will likely be forced to increase prices or charge consumers an administration fee to bear the cost of additional paper work."